Steve Ballmer, CEO of Microsoft Corporation (NASDAQ:MSFT), has announced today that he will resign said position within 12 months. Microsoft stock popped 9% pre-market following the news and opened at $35.18, a $2.79 increase over yesterday's closing price of $32.39. Additionally, its volume was abnormally higher than average. This market-leading rally reflects shareholders' desire to induce a change in management and their belief that this change will create more stock value.
Under Ballmer, Microsoft's share price halved and the company went from the world's largest by market cap to an aging, stagnating giant. His 13-year reign turned the superpower built by Bill Gates to an underdog in the industry's growth. Rumors of his imminent departure have been around for years, since many speculated that a new, more visionary and dynamic head would be better suited to lead the company in a changing landscape and put it back at the cutting edge of technology. Windows Vista was perhaps the biggest, most embarrassing failure for the OS giant. The new vision for Windows has potential and can work, but they were late to launch it and did not market it in a way that potential buyers saw its advantages over iPads and Android tablets. Windows Phone has picked up some steam during his tenure but has mostly seen slow-growth. The Surface tablet saw moderate success, but was not marketed well and is considered a failure. These two missed opportunities were largely the result of a failure to market the products effectively and to get manufacturers other than Nokia (NYSE:NOK) to commit to Windows Phone, as well as launch compelling products on Windows 8 and RT.
However, by far the largest failure of Steve Ballmer is that he missed the boat on smartphones, tablets, and social media, which allowed companies like Google (NASDAQ:GOOG) and Apple (NASDAQ:AAPL) to march ahead. While Microsoft had Windows Mobile long before the iPhone, they did not understand and implement a new, consumer-oriented system that focused on apps and ease of use. If they did that and replaced the stylus with finger-based multi-touch gestures, the story might have been different. They had Windows tablets for years before the iPad, but they experienced the same problems here as well. Microsoft underestimated technology, but when the wave came and Microsoft was slow to change, technology didn't wait.
As yet, there are no clear candidates for Ballmer's replacement. Microsoft has said they would consider both internal and external people for the job and that Ballmer would stay on until one is found. Bill Gates announced that he would play an active role in the selection process. While Gates himself is a visionary and may well make a good CEO (again), he is fully involved in his charity work and Microsoft will probably not consider him. In my opinion, Microsoft should acquire a smaller, more fast-paced company with a powerful CEO and appoint said CEO as their own, since there are no especially visionary or dynamic executives within the company. Reed Hastings, founder of Netflix (NASDAQ:NFLX) is one such option. Netflix is an internet-oriented company and has a strong presence in mobile. Additionally, they now have their own content and after all, content is king. Netflix may be an enriching purchase for Microsoft and it comes with a visionary leader. Another option is to pull an executive from another company. Marissa Mayer of Yahoo (NASDAQ:YHOO) is a potential candidate for this. She helped build Google in its early days and is now attempting to turn around Yahoo, with some early success. This is a key opportunity for Microsoft, so it is in their best interest to choose wisely.
The person they eventually pick has several opportunities to capitalize on. This person can aggressively market their products and add to the future pipeline, make strategic acquisitions to enhance Microsoft's reach, and most of all, needs to have the vision to stay vigilant and see the coming trends, allowing Microsoft to adapt quickly and rise to the top again. Basically, he/she can't repeat Ballmer's errors.
Great Company, Great Stock
Microsoft is very strong financially and its stock still has room to run. Current prices still don't reflect the true value of the company, and this recent development only adds to that.
On the product side, they have some great things in the pipeline such as the Xbox One, which has the potential to shake up the industry.
Steve Ballmer's departure opens up the top spot for someone to accelerate Microsoft's transformation into a devices and services company that can keep up with a changing industry.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.